When images of rioters, burning buildings and looted shops in London, and other British cities filled our television screens earlier this year, there were some who took it as a sign of a value-system gone wrong. To most of us, however, it pointed to one thing: the failure of Britain's social welfare system to deliver to its population when the country needed it most.

Western European nations have traditionally been high spenders on social welfare: in Germany for example, total public social expenditure as a percentage of GDP was 25.2 per cent, against an OECD average of 19.3 per cent for the year 2007, according to the latest available data from that organisation.

Denmark, Sweden, Austria and France all spend well over 26 per cent, while in Britain it amounted to 20.5 per cent and 19.3 per cent in the US. Since then, however, the picture has grown far more complex: as government spending and fiscal deficits come under the spotlight, countries have been rolling back their expenditure, with welfare budgets becoming an easy target as part of that effort, despite warnings from campaigners of its long term consequences.

Poor timing

Europe's approach, focusing on reducing social benefits and services, without substantial programmes to combat poverty, is likely to increase poverty, exclusion and inequality in the EU, the European Anti Poverty Network warned in a recent paper. “It is very poor timing,” says Claudia Wood, Head of the Public Services and Welfare Programme at Demos, a London-based thinktank. “At a time when larger numbers are facing family break down, rent arrears and evictions, that is when the state should step in.”

Critics of the British government's austerity measures argue that aside from the hardship they place on members of the public, few prove effective in cutting overall spending, merely shifting the burden on other departments. The British government's decision to limit the disability allowance given to those no longer able to work to just one year (after which they would have to turn to regular lower-paying forms of income support) falls into such a category, argues Wood, risking pushing some into homelessness and increasing the pressure on infrastructure and medical services.

Greece in distress

In Greece, the impact of cutbacks and the financial crisis has been particularly distressing: drug addition and HIV infection rates are sharply up — something activists attribute to cuts to the healthcare budget, while suicide rates amongst its population have now risen to the highest in Europe. Other changes, including a decision to suspend payments of means-tested subsidies for rent, and keep the maximum level of income allowed for unemployment assistance at what was set ten years ago, has fallen particularly hard on the weakest sections of society, says Professor Manos Matsaganis of the Athens University's department of economics in a recent briefing paper.

The crisis has also revealed the weakness in the entire system, he argues. “The trouble is that the Greek welfare state — with its bias in favour of pensions at the expense of unemployment protection and general income support — has neglected its core business for far too long…In the current conditions, it could prove disastrous,” he warns. (Interestingly Greece's public social expenditure as a percentage of GDP is below that of many other European states, at 21.3 per cent, the vast majority of which goes towards pension payments — overall belying the argument that it was welfare systems per se that were at the root of the financial crisis.)

Even Europe's stronger economies are under pressure, with the German government coming under fire last year for a measly 5 euro a month increase in its Hartz IV social welfare payments for the unemployed. It followed a court ruling, which had declared the Hartz IV system — brought in 2005 as part of government reforms to cut the benefit system and increase the incentive to go back to work — as unconstitutional, and requiring reform. The way those payments had been calculated had failed to be based on whether it was enough to live according to minimal humane standards, the judgement said.

Denmark model

Denmark's “flexicurity” model is worth some attention, having been a system considered so successful at tackling structural unemployment in particular, before the crisis, that European Commissioners were recommending it for the rest of Europe. (It is also considered the world's happiest country, according to the most recent OECD figures published in October).

Essentially, the country has an extremely flexible job market with minimal job security, meaning companies can hire and fire pretty much as they wish. This is coupled with relatively generous welfare payments for those looking for work (90 per cent of your income up to a monthly maximum of just over 2,000 euros a month), and a strong system involving training schemes, apprenticeships and so on to help those out of work to find a new job.

According to Torben Andersen, a professor of economics at Aarhus University in Denmark, the system has continued to work well through the crisis. “Job flows are still very high…if you took a group who had just been made unemployed and asked them three months later who was still unemployed it would be around 50 per cent,” he says. He admits that while there has been a rise in structural unemployment, so far at least it's not been a dramatic turn. Even this system, however, has felt the impact of the financial crisis: there was uproar when the country reduced the period that people received the unemployment benefit from four years to two.

Sceptics' take

The system does have its sceptics. As the benefit system is based on a voluntary insurance scheme, not all Danes are members, and those that don't join rely on the far less generous means-tested benefits, says Signe Hansen, of the Economic Council of the Labour Movement in Denmark.

Moreover, the cap of 2,000 euros odd on the monthly payouts means that those on higher incomes get a much lower fraction back — something that can prove problematic in a society where the size of mortgages taken out is vast, and therefore is particularly sensitive to fluctuations in income.

Moreover, changes made to the benefit system by the former centre-right government has made claiming particularly tough for immigrant families, she argues. (Major cuts were also made to the healthcare system).

The system is also expensive: Danes pay a top rate of tax of 50 per cent. Yet interestingly, the welfare system seems something the country is now eager to protect.

The new centre-left government led by the country's first woman Prime Minister Helle Thorning-Schmidt came to power, pledging to raise taxes and strengthen the welfare system. (They are expected to include increasing the tax breaks for the lowest paid to decrease the incentive of remaining on social welfare programmes). “In the good times a lot of people did not notice things had changed but it takes a crisis to show that the welfare system is not there to take care of you.”

blfeedback@thehindu.co.in

Related Topics